The Financial Instability Hypothesis Applied to the 2007 Financial Crisis

Chen Lim

MPRA Paper from University Library of Munich, Germany

Abstract: The serious dysfunctions observed in the financial markets following the collapse of the mortgage market in the United States have given new life to the ideas of Hyman Minsky,a post-Keynesian economist. Indeed, there are many who believe that thanks to his work, the current financial crisis could have been anticipated. The key mechanism that drives an economy to a crisis is the accumulation of debt during the boom period. The economy becomes more and more fragile. Financial innovations and deregulation in a context of globalization are responsible for this situation. This is an important point of his analysis. This is one of the aspects of the "financial instability hypothesis" (FIH). The other aspect is that during periods of growth, banks and other financial intermediaries try to convince investors to buy debts through sophisticated financial innovations. The role major of financial intermediaries in the crisis process is thus highlighted. Finally, it is possible to show that the current crisis is an application of the Minsky model.

Keywords: Financial; crisis (search for similar items in EconPapers)
JEL-codes: G01 (search for similar items in EconPapers)
Date: 2018-11-01
New Economics Papers: this item is included in nep-fdg, nep-hme and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in International Journal of Monetary Economics and Finance Autumn (2018): pp. 115-129

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/92142/1/MPRA_paper_92142.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:92142

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().